“Our top priority is revenue growth and by that measure we are not satisfied with our Q2 results,” Mayer said in a statement nearly two years after being named to head the Internet pioneer.

She noted that “several areas showed strength,” but that other segments such as display advertising lagged.

These are trends “further highlighting the fact that we need to work faster to ameliorate the negative trends,” Mayer said.

“I believe we can and will do better moving forward. Overall, I remain confident in Yahoo's future, our strategy, and our return to long-term growth.”

Yahoo also said it had reached an agreement with Alibaba to sell fewer shares than anticipated when the Chinese online giant makes its market debut.

The deal reduced the number of shares Yahoo will sell from 208 million shares to 140 million.

Chief finance officer Ken Goldman said that the majority of the proceeds of the sale of Yahoo's stake would be returned to shareholders.

“We would like to take this opportunity to let our investors know that we are committed to return at least half of the after-tax IPO proceeds to shareholders, in line with our overarching commitment to maximising shareholder value through prudent capital allocation,” he said in the earnings statement.

Yahoo holds a stake of around 22 percent in the Chinese group, which has announced plans for a US initial public offering.

Yahoo said that in the past quarter it made gains in search-related advertising and other online advertising which helped offset the decline in display ad revenues.

But analysts have pointed out that Yahoo is losing momentum in key areas of online advertising, as the one-time Internet star seeks to redefine itself with new services such as video, music, blogs and more.

According to the research firm eMarketer, Microsoft is expected to overtake Yahoo for the first time in digital advertising revenues.

The survey by eMarketer represents a setback for Yahoo's effort to return to its glory days as an Internet pioneer.

The report said Google will extend its domination of the global digital ad market this year, with a 31.45 percent market share, while Facebook will see its share grow to 7.79 percent.

Yahoo's ad revenues will increase by around 2.7 percent to $3.53-billion, but its growth will be slower than the rest of the fast-growing sector, eMarketer said.

Microsoft meanwhile is expected to see 20 percent growth in ad revenues to $3.56-billion, for a 2.54 percent market share. - Sapa-AFP